Malaysia is likely to review a directive to foreign insurers to reduce ownership of their local units by nearly a third as finding domestic buyers for the equity stakes is proving hard, three people familiar with the matter said.

The review may result in the Malaysian regulator putting the requirement in abeyance, the people said.

That would provide respite to foreign firms including Great Eastern Holdings, Prudential, Tokio Marine Holdings and Zurich Insurance by putting off deals worth more than $2 billion that were being thrust upon them.

Foreign insurers have been expanding in Malaysia and other Southeast Asian countries in recent years, lured by strong economic growth, rising middle-class income and lower insurance penetration.

But they were caught offguard last year when Malaysia’s central bank, which also regulates insurers, said it would enforce its 2009 rule setting a 70 percent cap on foreign ownership of local insurance businesses.

The directive had sent foreign insurers in Malaysia, many of whom operate wholly-owned units, scrambling to seal deals to sell 30 percent stakes to local state-linked funds or list the local arms.

The potential review of the directive comes against the backdrop of Mahathir Mohamad becoming Malaysia’s prime minister last month and Muhammad Ibrahim resigning as the central bank governor.

Two senior officials who were responsible for issues relating to the insurance sector at Bank Negara Malaysia, the central bank, have also resigned in recent months, two of the people said.

One of the sources said stake sale valuations were below expectations of some insurers and they had indicated this to the central bank.

The Malaysian regulator, however, is yet to formally inform insurers about the possible review and could still go ahead with the plan by relaxing some conditions, the two other people said, declining to elaborate.

Bank Negara did not immediately respond to a request for comment. The people declined to be named as the plans were not public yet.

The central bank had said in March measures by some foreign insurers to cut stakes in their local units are “in relation to specific commitments” that these firms made when they applied for entry into the country.

Local Funds

Citing sources, Reuters reported in March that Prudential and Great Eastern were in talks with pension funds Kumpulan Wang Persaraan (KWAP) and Employees Provident Fund, respectively, to cut their stakes in their wholly-owned local units.

“We cannot comment on it as we are still negotiating on the deal, and as far as we are concerned the deadline has not changed,” KWAP CEO Wan Kamaruzaman Wan Ahmad told Reuters.

Representatives at Great Eastern, Prudential, Tokio Marine and Zurich declined to comment.

An EPF spokeswoman said the fund’s discussions were still ongoing.

The regulator is expected to stick to its end-June deadline of getting firms to submit plans to reduce stakes by 30 percent, and a decision on the review is likely to be announced after that, the people said.

Most foreign insurers are struggling to find local investors who could add value to their units and don’t have much appetite to do listings in the near-term in dour equity markets, they said.

A small number of large local funds in Malaysia had stoked concern among foreign insurers about competing for the same pool of institutional investors.

Expected management changes at Malaysian state-linked funds after the election are also likely to result in muted responses on their part, especially for deals that don’t give them majority control, the people said. (Additional reporting by Liz Lee in Kuala Lumpur and Junko Fujita in Tokyo.)